Dividend and Non Dividend
Stock Valuation
One primary reason individuals invest in stocks is to receive returns on their investment in the form of
dividends. Not all companies opt to offer dividends to their investors, however. In their article The Dividend
Discount Model in the Long Run:
A Clinical Study, the authors discuss the importance of three variables that
affect the valuation of a dividend and non dividend
paying stocks. They note how valuation is influenced by
the size, timing, and uncertainty of cash flows that the asset will generate for investors over its lifetime.
Use the Internet to access financial sites to find a company that does not pay dividends.
From a theoretical view, explain the merits and/or pitfalls of using the dividend growth model to estimate the
stock price of a non dividend
paying stock.
Then, compare and contrast how these variables affect the valuation of a dividend paying stock and a non dividend
paying stock.